Return of Cold War tensions supports gold for the long term
The civil war in Syria is a complicated picture. For an outside observer, it can be difficult to know who the different factions are, what alliances they have, and what aims they represent.
The Syrian conflict is important to monitor because it could have wider reverberations throughout the world, including the financial markets. Investors may not need to unravel all of the complexities of events in Syria, but they should know what geopolitical risks to watch for as the conflict continues.
Investor anxiety tends to rise when geopolitical risks escalate. In a climate where the likelihood of these risks grows, gold tends to shine as a safe haven for nervous investors.
Among the biggest geopolitical risks evolving out of the Syrian conflict is a re-emergence of Cold War tensions between the U.S. and Russia. In Syria, Russia sees a stage on which it can seek to assert its military and diplomatic might, with the ultimate goal of re-establishing its influence as a global superpower.
The U.S. and Russia do have some overlapping objectives in Syria. The U.S. wants to crush Isis-aligned terrorist groups in Syria. These fighters are also battling the government of Syrian leader Bashar al-Assad, who has support from their traditional ally in Russia (along with another U.S. rival, Iran.)
Despite sharing some objectives, the U.S. and Russia appear to be more often at loggerheads on the Syrian stage. With military weaponry involved, there is always a potential for lethal engagement, whether errant or unintentional. Perhaps the more likely conflict between the two countries is a breakdown in cooperation and an escalation of tension that unsettles the existing geopolitical order.
What is emerging out of Syria and other hot spots is a changing dynamic between global superpowers in the U.S. and Russia. China as well is taking steps to become a third global superpower and act as a counterweight to U.S. dominance.
The likelihood of a wide-scale war between these nations and its allies is currently low; everyone involved has more to lose than to gain from pursuing a broader military conflict. Whats more likely are periods of escalating tensions that recall the rivalries of the Cold War, with the potential for occasional flare-ups that focus attention on the significant geopolitical risks.
This evolving picture of geopolitical risks, with Russia and China emerging to pivot U.S. hegemony, would help support prices for gold and other precious metals over the long-term. As long as the risk of rising tensions between these superpowers hangs in the air, gold and other precious metal will remain attractive to anxious investors who seek safe havens for preserving their wealth.
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